Saving for College

A Guide to 529 Plans for Parents

Beginning to put money aside for a child’s tuition is a daunting task, with a wide basket of considerations to take into account. Drawing up the list of pros and cons for different approaches to the undertaking, the mind begins to reel. The sea of options is so vast and the decision is such an important one, many parents feel lost. Which option should one choose?

Every parent looks forward to this moment with their child. 529 plans can help you get there!

Every parent looks forward to this moment with their child. 529 plans can help you get there!

A highly practical and widely overlooked option is a 529 plan. The 529 plan essentially functions like a 401(k) plan, but, instead of being focused towards saving for retirement, it focuses on saving for college. Similarly to a 401(k), it draws from your income but isn’t taxable and is designated for an account that can only be accessed at a particular time and for a particular reason. In this case, that particular reason is, of course, your child going to college.

Here are a few words to the wise about the 529 plan that hopefully are helpful in deciding if it’s the right plan for you, and if so, how to best go about it:


You can invest in any state plan!

529 savings plans are state sponsored, but don’t have be invested in the state you currently live in. If another state offers a better plan, feel free to sign up for that one! However, if you do intend to invest in a 529 plan in a different state, you may be giving up the tax deduction awarded to you for investing in your home state. Be sure to carefully read all of the details for whatever plan you choose.


Be wary of fees

529 plans are often fraught with fees, and depending on where you live and what your situation is, a 529 plan may do you more harm than good. Do ample research and crunch the numbers to be sure that investing the a 529 plan will ultimately benefit you instead of harming you.


How will a 529 plan impact financial aid?

Taking the prudent measure of investing in a 529 plan will in turn impact your child’s eligibility for financial aid. However, the consequences are generally not as severe as one might expect, and if the plan is created by a grandparent or distant relative, it doesn’t even have to be reported.


Know the risks 

What a shame it would be to invest in a 529 plan only for your child to decide that college isn’t right for them. Though less safe an option due to its volatile nature, investing in stocks may be smarter for its accessibility and diverse usage.